RELATED COMPANIES

x

Loading data...

ChartsValuation & Peer ComparisonCommunity Buzz

Close ✕

MUMBAI: Gold has disappointed many investors in 2013. Mumbai standard gold prices are down from Rs 30,490 on December 31, 2012 toRs 29,720 on December 23, 2013, a loss of 2.52%. The modest loss does not depict the true picture. It is best captured by the volatility registered by the high of Rs 33,265 and low of Rs 25,130, all thanks to increased intervention by government, fall in gold prices in the international markets and a weak rupee.

Gold ETFs have seen a 22% fall in assets under management, fromRs 11,992 crore in December 2012 to Rs 9,325 crore in November 2012, according to data release by Association of Mutual Funds in India. So what is in store for investors in the coming year?

"We remain bearish on gold and expect rupee prices to go down to Rs 26,000 per 10 gram, provided the government does not reduce import duty and rupee does not appreciate beyond 59 per US dollar," says Kishore Narne, associate director & head -- commodity & currency, Motilal Oswal Commodity Broker.

Domestic gold prices are dependent on multiple factors such as international macroeconomic scenario, Indian government policies, global consumption demand and rupee dollar exchange rate, and so on.

The world financial community is bracing for money flowing back to the US from emerging markets after the Federal Reserve announced a cut in stimulus by $10 billion per month. If the US economy posts strong growth and policymakers stick to the agenda of quantitative easing, the demand for safe haven (read gold) will go down.

"Outflows from international gold ETFs are expected to further drive the gold prices down in dollar terms due to an improvement in sentiment in the US after announcement of QE taper," says Naveen Mathur, associate director - commodities cies, Angel Broking. He expects the domestic prices of gold to remain in the range of Rs 25,500 to Rs 26,000 per 10 gram due to lack of positive triggers.

Uncertainties May Keep It Afloat

Though market participants expect gold prices remain under pressure, most of them add a caveat to their predictions. "The markets have factored in reduction in quantitative easing, as the gold prices are already down from a high of $1,600 per ounce and the future course in gold prices will largely be dictated by how the unwinding of quantitative easing happens in the US and its results on global macro-economic scenario," says Chirag Mehta, fund manager - commodities, Quantum Mutual Fund.

That is why many experts believe that it is time to keep a watch on how the macroeconomic scenario unfolds. For example, if the Federal Reserve announces a pause in further tapering of quantitative easing, it may be seen as a question mark on US economic recovery, which is still in a fragile state.

Also, there are a lot of uncertainties about how the US manages a structural recovery independent of economic stimulus, how do the inflation numbers appear in the US after a possible hike in minimum wages and how do the bond yields move. European economies are still not completely out of the woods due to leverage faced by them earlier.

If any of these problems resurface, then gold may come back in demand. Domestic factors also pose some problems.

Thanks to the improving current account deficit, the government may remove recently imposed curbs on gold imports and reduce import duty on gold, say many market participants.

A cut in import duty will drag the prices down in the short term, but along with removal of curbs on gold imports, it would fuel strong consumption demand from India, which has been one of the largest consumers of gold. Indian demand for gold dropped by 23% year-on-year to 104.7 tonnes in the third quarter of CY13, says data from World Gold Council.

Traders, however, should wait for some time and let prices correct before taking any long positions in gold, adds Gupta, who believes that despite the downward pressure in gold prices in the first three months in 2014, gold in rupee terms may remain betweenRs 32,000 to Rs 35,000 per 10 gram in CY14, if the rupee remains in the range of 60 to 65 against the dollar.